Tesla stock has been falling -- but don't try to figure out why

Tesla shares have dropped over $US20 this week, after hitting a new high, threatening $US400 at one point.

On Thursday, shares closed at $US366, down 2%, and on Friday the stock was slipping further in pre-market trading.

So what gives?

Nothing, really. Tesla revealed that it will discontinue its cheapest Model S sedan option, the rear-wheel-drive choice with a 75 kWh battery pack, but as my colleague Danielle Muoio reported, that was expected, and Tesla has dropped less expensive cars before. It can always bring them back, by subtracting an electric motor from dual-motor vehicle or throttling back a battery pack using software. The framework of the vehicles themselves don’t change much.

Mercedes also said that it would spend $US1 billion to advance its own electric-car ambitions at a factory in Alabama. But with EV sales currently at only 1% of the global auto market — and gas-powered SUV more popular than ever in the US — we’d be wise to take a wait-and-see attitude toward Mercedes ultimate plans.

Otherwise, the condition of Tesla is the same as it was last week and the week before. Its Model 3 sedan is slowly ramping up production: 30 deliveries in July, 75 in August, probably something like 200 in September (see InsiderEVs.com for the tally). It’s still losing money. It’s still selling luxury EVs for $US100,000. It has no meaningful competition because, for the moment, the traditional auto industry doesn’t want to invest in electric cars when very few consumers want to buy one.

Back to the original question: What gives?

Tesla is commonly described as a growth stock or a story stock. The former is questionable because the company is over a decade old and has rarely made money while simultaneously burning cash at a furious rate. The assumption is that this will change in the future at some point. But for Tesla to be worth more than General Motors, it needs to find a path to profits and also devise a way to make millions of vehicles a year at a substantially lower cost than a conventional carmaker.

The story stock explanation sticks better because Tesla trades on plot points. Except when it doesn’t. Then the story becomes unclear. Tesla doesn’t help matters by pitching itself as a carmaker, solar company, and energy storage enterprise.

Tesla as a stock is wildly volatile, making it attractive to traders who want to go long or short. In fact, it’s the perfect traders’ stock now; for several years, it’s surged high and swooned low. Trying to figure out why, exactly, it soars or sinks is fruitless. By now, the chaos has been baked in. The market likes it that way.